BOJ doubted inflation target effect in 2003: minutes

Bank of Japan Gov. Toshihiko Fukui opposed the introduction of an inflation target when he assumed the post in March 2003, expressing doubt that monetary policy could affect prices by influencing public sentiment, according to the minutes of a policy meeting covering January to June 2003.

Opposing a proposal by then-Deputy Gov. Kazumasa Iwata, who called for the introduction of an inflation target at an extraordinary meeting on March 25, 2003, Fukui said monetary authorities would not be able to control market and consumer expectations so as to achieve price escalation.

The information comes from minutes released Wednesday.

The move contrasts with the decision by the bank to introduce a price target in January, after Shinzo Abe, who supports using an inflation target in seeking to beat deflation, became prime minister in December.

In April, current BOJ Gov. Haruhiko Kuroda decided on large-scale monetary easing steps featuring a doubling of the monetary base and boosting long-term government bond purchases in an attempt to exert influence on public expectations to move up actual prices.

At the extraordinary meeting in March 2003, Iwata, who was seen as one of the leading candidates to become BOJ governor in March this year, said the quantitative easing policy pursued by Fukui’s predecessor, Masaru Hayami, “lacked the power to overcome deflation.”

Iwata called for the introduction of a price target, asserting that monetary policy management “should focus on (setting) a goal” and that it is “essentially important to exert influence on expectations.”

Fukui said he felt “sympathetic” toward setting a final goal within the monetary policy from the perspective of securing transparency, but opposed it, as it would be difficult to use the monetary policy to intentionally heighten expectations to raise prices.

“I have a basic doubt that we cannot control expectations,” he said, according to the minutes.